Impermanent loss occurs when the value of assets deposited in a liquidity pool diverges from their value if held outside the pool, resulting in a temporary loss for liquidity providers. This loss is considered impermanent because it may be recovered if prices realign.
However, significant price volatility can lead to permanent losses if the provider withdraws funds at an inopportune moment.
Understanding impermanent loss is critical for anyone participating in liquidity mining or providing funds to decentralized finance platforms.
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